As world leaders scramble to limit the spread of COVID-19 and save millions of lives, we are increasingly hearing concerns regarding how social distancing and lockdown measures will impact the economy.
Governments and economic commentators fear a “stock market crash” and a “recession worse than 2009”, and are developing economic stimulus plans accordingly. But using GDP and stock market values as a barometer of economic health is misguided. The existing policy landscape is constrained by economic ideas and tools built for another time.
In this moment, our economic policies must be oriented towards meeting basic needs, promoting essential activities and facilitating a 'Great Pause' while we figure out to overcome this global pandemic. There is no longer an economic status quo available to us. What does this mean in practice?
1. The stock market is not a reflection of our economic reality
Stock market values are often used as a measure of economic vitality because they are meant to anticipate future monetary values. The problem of course is that no one knows what the future will look like. Therefore, now more than ever, the stock market has only the narrowest ability to reflect the real world and is therefore not a good guide for us in these times. If policy makers want to avoid a financial collapse, they should seriously consider shutting down the stock market for a period to limit run-away, anxiety-ridden trading. Or at least ensure that any Quantitative Easing or liquidity injections are based on a quid pro quo that cancels debts for businesses and citizens.
2. We will enter a recession – and that’s okay
When you hear policy markers fearing a recession, this means they are fearing that GDP will fall for at least two consecutive quarters. As the economist Frances Coppola has argued, “recession is the wrong word, because it implies this is bad. Better to call it ‘protective contraction’. We need a huge drop in GDP”.
If we learn one thing in all of this, it is that we are the economy. As we take a moment to stand still, the economy equally becomes more still. Our tendency to move, gather and work together are fundamental drivers of the economy. As millions stay at home to protect themselves and others, the economy will contract. Doing anything other than reducing economic activity right now would be putting our collective wellbeing in danger. GDP will drop during this time, and that’s okay.
And remember: just because the economy is not growing does not mean that we cannot ensure that everyone’s basic needs are met. Now more than ever we need to recognise that the economy is the system by which we provide for one another. A system that can and should provide for what our families and societies need most.
3. Economic policies for a ‘Great Pause’
During this period of crisis, we must abandon the old metrics of economic progress and listen to what people need. Economic policy responses must be swift and strategic and focus on meeting everyone’s basic needs and safeguarding essential parts of the economy. Combined, policies must enable a ‘Great Pause’: allowing us to bunker down, buy time, and keep ourselves and others safe while we focus on ensuring equitable access to health, food, housing, income, while enabling businesses (especially SMEs) to pause their operations until we have a handle on COVID-19.
Make no mistake, such policies will require significant public expenditures and we must implement strategies now to ensure that the economic costs are paid by those who are able to afford it. We cannot repeat the mistakes made following the 2009 economic recession and allow for governments to balance budgets through toxic austerity measures.
This is a unique moment for global solidarity, as only a globally coordinated response can combat this pandemic. Now is the time to go into offshore bank accounts, to close tax loopholes and to generate a global relief fund so that we do not allow this crisis to further consolidate wealth into the hands of the few. As we work to protect those closest to home, we must not forget that no country alone can combat a pandemic. We are all in this together.
4. Building back better
As we secure lives and livelihoods, we can take the opportunity of this 'Great Pause' to learn and reflect on what is truly important to us. And instead of rebuilding a broken system, we must consider the policies required to build back better so that our economy delivers social and ecological wellbeing.
We have a once-in-a-lifetime chance to learn from the complete disruption of the economic status quo. We have known for some time that the 21st century obsession with growth creates extreme inequality and environmental degradation, but we haven’t yet found a way to create a path to something different.
This is a time to ask important questions – what is important to us when our very lives are under threat? What have we found that actually, we can live without? Where have we found meaning, and connection? What do we realise we have taken for granted and what can live without? What do we need our economy to deliver so that we can all live meaningful and fulfilling lives?
We have already seen how many of the workers who have been kept in poverty wages and economic precarity are actually the most critical for our collective wellbeing. Healthcare workers, farmers, grocery clerks, delivery drivers and caregivers have become the heroes of our day. Meanwhile, this moment of pause has brought increasing clarity to the things we value most, we now see how valuable (in every sense of the world) food, health, income security, education, mobility, access to nature, social connection and public services are to us.
This Great Pause gives us the time to consider how we can build an economy on these foundations. We must not return to business as usual, looking to financial markets and GDP growth figures for guidance. Economic policies must be oriented towards protecting and promoting the economic activities that are essential for social and environmental wellbeing. We have an opportunity to build back better.
The shape of the new economy is not a distant, dry set of policies. It is something we are living in and exploring right now. Let's be present, move forward with compassion and explore the shape of things to come.
We invite interested people to engage in the conversation at WellbeingEconomy.org.